Are Cryptocurrency Exchanges Asking Low Volume Coins For Bribes?
Over the last few years, as cryptocurrency trading volume has soared, there has been tremendous growth in the number of exchanges. Crypto trading volume really took off in 2017 as retail traders and institutional money flooded into the market. This presented an opportunity for savvy entrepreneurs to stake their claim and start an exchange. Unfortunately, not all exchanges are created equal. Crypto trading is still an industry in its infancy which means it’s not regulated nearly as tough as many other industries.
Big Exchanges Charge Expensive Listing Fees
During the crazy bull run that lasted through the very early part of 2018, crypto projects were desperately trying to get listed on the biggest and most active exchanges. The most coveted exchanges include Binance, Bittrex, Poloniex, Kraken, and BitStamp. And while these exchanges certainly offer an attractive landing spot, there is a major problem; the listing fee. As these exchanges have grown and gained power, only projects that are willing to pay an expensive fee receive a listing.
In August, Bitcoinist.com ran a story about the reported listing fees that Binance was charging. Christopher Franko, the co-founder of Expanse, submitted a listing request in early August. According to Franko, Binance contacted him and requested a $2.6 million payment to list his coin. This approach is problematic for small projects as they can’t afford to pay the fee. Only the biggest projects which are extremely well capitalized and have money to burn can get listed on the most popular exchanges.
In October, Binance issued a listing fee update. The company now claims that the exchange “will make all listing fees transparent and donate 100% of them to charity. Project teams will still propose the number they would like to provide for a “listing fee,” or now more appropriately called a ‘donation.’ Binance will not dictate a number, nor is there a minimum required listing fee.”
Small Exchanges Offer An Alternative
Crypto projects that aren’t as resource rich will have a very difficult time getting listed on the most popular exchanges. The expensive initial listing requirement will consequently relegate many projects to listing on smaller exchanges such as KuCoin, OKEx, and Cryptopia. While there is nothing wrong with these exchanges, volume isn’t as pronounced as it is on the largest exchanges.
Instead of generating revenue from expensive initial listing fees, these small exchanges rely on trading volume for the bulk of their revenue. From 2017 through the early part of 2018, that wasn’t a problem. Cryptocurrency trading volume exploded as retail and institutional money flooded into the market. Both traders and exchanges were reaping the benefits. But now that crypto has been in a prolonged bear market, volume has cooled off. Some of the small exchanges now rely on other gimmicks to generate revenue.
Many of the gimmicks center around advertising/marketing expenses. For example, on Cryptopia, companies can pay fees to have their coin advertised on the trading landing page.
Bribes To Maintain Listing
While there is nothing wrong with generating revenue from advertising, there have been some troubling reports lately about exchanges asking coins to engage in “liquidity management.” Rahul Sood, the Chief Executive Officer of Unikrn, recently took to Twitter to let the world know that both OKEx and KuCoin had delisted his UKG token because he refused to engage in liquidity management.
Sood made it clear that he was entirely focused on building his business and not trying to “game” volume to appease the likes of OKEx and KuCoin. And Sood certainly isn’t the only crypto executive who’s voicing his frustration. David Koepsell, CEO of Encrypgen, also stated on Telegram that Encrypgen’s token, DNA, was delisted on KuCoin because he refused to pay a bribe.
It’s unclear what bribe KuCoin was asking for but most likely related to a fee for “market making.” Unfortunately, given the current lack of trading volume in the crypto markets, these small exchanges have had to resort to questionable tactics to bring in additional revenue.
KuCoin and OKEx don’t appear to be playing the long game. They are delisting solid coins like UKG and DNA that refuse to pay bribes. While that may not be a problem now, it may become one in the future when the volume returns to the alt market. Projects that were delisted for refusing to pay a bribe won’t return and, instead, will take their business elsewhere.
One bright spot in the story is that Cryptopia doesn’t appear to engage in the same questionable tactics. While the company does charge a small fee for an exchange listing, there are no reports of demanding coins pay a market making fee to stay listed. Since the OKEx and KuCoin delisting, Encrypgen’s volume has exploded on Cryptopia. Only time will tell but Cryptopia may end up being the big winner in all of this.
Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.
Featured image courtesy of Shutterstock.